Kickstart your nonprofit corporation

Nonprofits receive revenue through sources like grants, donations, and membership programs. They use their revenue to pay for expenses needed to operate their business, including employee salaries.

There are a variety of terms used for nonprofits. You may see a nonprofit organization called an NPO. If an organization serves a group of members rather than the general public, it may be called a non-for-profit organization. An example of a nonprofit institution is a public university. Sometimes you'll see tax-exempt organizations casually referred to as "501c3 nonprofits."

A key difference is that a for-profit company can distribute earnings to owners or shareholders, while a nonprofit is restricted from doing so. It's crucial to maintain tight controls over an organization's net earnings and finances to maintain this distinction.

Because nonprofit corporations have boards of directors to consult, nonprofits can be slower to act on opportunities than nimble startups.

A nonprofit may be formed as a corporation, but it is possible to create other nonprofit entities, such as a nonprofit LLC.

An LLC is a type of business legal entity, while the term 501(c)(3) refers to any organization that's been granted tax-exempt status by the IRS under that specific section of the Internal Revenue Code.

It's a section of the Internal Revenue Code—26 U.S.C. § 501(c)(3)—that makes qualifying organizations exempt from federal income tax and allows them to accept tax-deductible donations.

In addition to satisfying various IRS requirements, eligible organizations must generally be involved in religious, charitable, scientific, public safety, literary, or educational activities.

Maintaining your tax-exempt status requires year-round compliance, including recording all finances and expenses, remaining compliant with nonprofit bylaws, and filing Form 990 annually with the IRS.

Both public charities and private foundations have 501(c)(3) status, but how they get funding differs. Public charities typically get funding from the public and government. Private foundations typically get donations from a few individuals, a family, or a corporation. Regardless of the funding source, none of the earnings can be distributed to private shareholders or individuals.

There are typically three types of fees for incorporation: a fee to file the articles of incorporation, which depends on your state; a first-year franchise tax payment, which can range from $800 to $1,000; and attorney fees, should you seek attorney help.

No. Though both are a type of business entity, LLCs (or limited liability companies) have a different ownership structure and less reporting requirements.

Both types of business entities protect owners so they're not personally on the hook for business liabilities or debts. LLCs have one or more individual owners, while corporations have shareholders, and corporations generally have more formal record-keeping and reporting requirements. Even though LLCs are considered easier to start and maintain, investors tend to prefer corporations.

It helps ensure that you and other shareholders aren't personally on the hook for company debts and liabilities.

Articles of incorporation are a requirement for forming a corporation. They comprise a formal document that establishes the corporation as a separate business entity. The articles become a public record and provide important information about the corporation, including its name, contact information, and information about its shares of stock. The exact information that the articles need to include vary by state.

Owners of a corporation are called shareholders, and they elect directors to oversee business operations. Corporate profits, called dividends, are distributed to shareholders according to the number of shares each owns.